Valuation: impact of dynamic data

Data mania

17 November 2016

Sonny Masero explains how dynamic data could change the way
in which buildings are valued and managed

What is this obsession with data? The internet and the success
of companies such as Google and Facebook have caused data to capture the
popular imagination like never before. How can these corporations with vast,
apparently intangible, assets be some of the largest businesses in the world?
Their extraordinary value is not based on physical assets, yet these businesses
are transforming and disrupting most of the established industries, and the
property sector is next in line. Data will affect yields and property
valuations at an increasingly accelerating rate.

‘Proptech’ and
‘CREtech’
are terms that have already been coined for the innovative use of technology in
the property and corporate real-estate sectors. The hype has not yet reached
fever pitch, but you can see that the excitement about data-driven apps is on
the rise.

There are obvious examples of proptech software hosted in
the cloud, enabling, for instance, online estate agents and crowdfunding sites
for property investment, computer-aided facilities management, building energy management
systems, intelligent building management systems, computer-aided design and
building information modelling – or, for the acronym-happy, CAFM, BEMS, IBMS,
CAD and BIM – as well as property asset management platforms. Some of this
software has been around for some time and migrated online, while other
applications have been devised specifically for the mobile internet era. Their
success depends on 3 key abilities:

to provide commercial value to customers;

to acquire data and use it to provide valuable intelligence; and

to enable both of the above at scale.

Market needs

Property assets do not change at the same speed at which
they create data, so the sector and technology are out of sync. The
professionals who manage assets on a day-to-day basis are not always online,
and tend to concentrate more on lease agreements or building maintenance than
on apps for buildings. Properties do generate data, and in large quantities,
but this shouldn’t mean that the market becomes data-driven. The use of
technology should instead be need-driven and, in some cases, event-driven.

A real-estate data strategy must be driven by the
requirements of the property, the portfolio and the market, and needs will
obviously differ between asset classes and grades. While traditional property
valuation principles will persist, commercial properties will be able to
deliver greater value with the use of smart data for differentiation and
operational optimisation. For corporate real estate, data will be used to get
more from a company’s most important assets, namely their people. How will this
change the role of the property manager?

Dynamic information

Data is already being used to make buildings more efficient
and easier to maintain, which can reduce operating costs and increase net
operating income. It is also being used to manage buildings so that they are
more comfortable, reducing complaints from employees and tenants and thus
improving relationships and productivity. In addition, data is used to
prioritise investment, increase yields in portfolios and maximise the use of
capacity in estates.

Technology is creating an increasingly rich picture of how
properties perform in real time and this will, in due course, inform the design
and refurbishment of buildings as well as more dynamic lease or service charge
arrangements. Internet and mobile technology has changed the way that
properties operate as offices, retail spaces and specialist uses such as data
centres. Property portfolios and corporate real estate have altered as a
result, particularly in the last decade, while performance data has also become
more visible through portfolio benchmarking and disclosure requirements, and
there is no reason to expect that this change will stop – or will indeed do
anything other than accelerate.

Data is already being used to make buildings more efficient and easier to maintain

To satisfy clients, tenants and occupiers who will have more
asset data available to them, property managers will need to be data-enabled to
maximise returns. There will be room for negotiation over data about the market
– such as comparable freeholds and leases – geospatial information, the
condition of property’s physical assets and how the building is managed,
including operational costs, as well as the satisfaction of building users.
This is not a change in the type of data – the change is in the volume and
velocity of data. It is now possible to monitor instantaneously how comfortable
and productive people are in an office or see in real time where shoppers tread
in a store. The latest price information is available at your fingertips – and
at those of the occupier.

Reviewing strategy

Property owners and asset managers should both review their
data strategy on the following 4 levels to ensure that software can be synchronised
with established asset management and business processes:

customer/client/tenant relationship management;

portfolio/estate management;

property management; and

facility/building management.

The business need for data insight on each level is likely
to be framed by a defined frequency, for instance, with a live feed, daily or
weekly digests, monthly or quarterly reviews, or annual reporting. Complexity
in a portfolio or a property will also be a factor, determined by the number of
users, properties, uses, tenants, data sources and data volume. This frequency
and complexity is key to deciding whether software is required or a spreadsheet
will suffice. An evaluation of the value of a tool should be performed in the
context of an event – the transaction or service delivery – taking place at
each level.

Choosing tools

Sorting through the available data solutions is not a straightforward
process. In hindsight, it is easy to identify winners such as Google, LinkedIn
and Facebook, but not so in advance. The best option is to consider the
following principles when selecting tools.

Time to value: the process of data acquisition must be
inexpensive and should deliver value quickly.

Open: tools should use open standards and be both web-based
and interoperable to avoid getting locked into a single provider and enable
combination of data sets.

‘Easy button’: users will be time-poor, so data analysis
should provide insight at a single click rather than assuming sophisticated
knowledge of systems.

Collaborative: no single person is responsible for a commercial
property, so the tool should enable sharing of data insights and action.

Push: real-estate professionals may be familiar with apps in
their personal life but it is not the norm in the sector to use them, so tools
will need to provide succinct information in a useful and timely way.

In the interest of disclosure, my company Demand Logic tries to adhere to these
principles to help ensure long-term success. As a software company, we provide
the equivalent of a Fitbit for buildings, which monitors live data and provides
insight for facilities managers. We work with many large property companies,
investors and their managing agents and contractors to improve the way in which
buildings are managed and maintained.

Customers such as RBS and Land Securities appreciate the
value in which live data about comfort and productivity, the condition of
heating, ventilation and air conditioning (HVAC) and the energy performance of individual
pieces of equipment can fundamentally alter asset management. They understand
it can improve the conditions for occupiers while also saving on energy and
maintenance. It can also improve the commissioning process and reduce defects
in the warranty period. This enables our customers to demonstrate to existing
and potential occupiers that their properties are built, acquired and managed
well.

These are all immediate steps that can be taken to improve
conditions for occupiers and reduce operating expenses. In the future, this
data could be used in a variety of other ways. In property acquisitions, due
diligence can be improved with live data about the condition of the building
services and a better understanding of the potential for operational energy
savings. For instance, does a long-term, scheduled planned preventive
maintenance (PPM) contract deliver the best building performance? Live HVAC
data can inform a hybrid maintenance model that combines essential PPM with
demand-led maintenance, meaning that engineers can deliver maintenance on demand.

Data will change the property sector. Those property
managers who understand this impact early and equip themselves with the right
tools will secure value early as well; they will be better prepared for the
next phase of technology innovation too. Late adopters will see less value as
these practices become the norm, providing less differentiation, and they will
be less able to adapt as we see accelerated change.